China's credit growth in January is a reflection of the economy's steady rebound. However, the amount of growth raises concern.

The total new financing, an indicator of overall liquidity, amounted to 2.54 trillion yuan ($404.4 billion) in January, an increase of more than 50 percent on December and more than double that of a year ago. New yuan lending also exploded, reaching 1.07 trillion yuan, compared with 454 billion yuan in December and 738 billion a year ago.

Such growth can be rightly attributed to economy's solid recovery. The Chinese economy bottomed out in the last quarter of 2012 and the upturn continued into January.

But it is also because Chinese banks tend to lend more in the first months of a year to pre-empt any policy tightening in the latter half of the year.

The new yuan lending in January was the highest monthly reading since February 2010. The return of such high-level credit expansion could boost economic growth, but it could also fuel the dangers of a low-quality investment boom and rising inflation.

During last year's central economic work conference, which set the tone for policymaking this year, the leadership required that "lending should be increased properly". Such a guideline, however, should not be taken as a green light for unrestricted credit expansion in the name of supporting economic growth.

As a sign of a resurging credit-backed investment boom, many provinces have set high annual investment growth targets for this year, with some of them at 30 percent or even higher, a level that is too high for an economy undergoing quantity-to-quality economic restructuring.

Rising inflation could be another fallout from the ongoing credit expansion.

The official year-on-year growth of the consumer price index was 2 percent in January, down from the seven-month high of 2.5 percent in December. But what is more notable is the month-on-month change, which provides a more effective indication of short-term inflation movement. In January, consumer inflation picked up by 1 percent month-on-month, the strongest since February 2012.

Considering domestic production costs are expected to rise, and given the amount of easy money in the international markets, monetary policymakers should plan early and remain alert to the credit growth.

(China Daily 02/19/2013 page8)